Euro Area: Business activity growth slumps to 16-month low in June

Euro Area PMI June 2022

Euro Area: Business activity growth slumps to 16-month low in June

The flash Eurozone Composite Purchasing Managers’ Index (PMI) fell to 51.9 in June from 54.8 in May, marking the worst reading since February 2021. However, the index remained above the 50 no-change threshold, signaling another improvement in business conditions.

June’s decrease was led by manufacturing output contracting for the first time in two years and a marked cooling in services sector activity growth. Moreover, new orders stagnated for the first time since March 2021. Inflation, the war in Ukraine, pandemic-related disruptions, and tighter financial conditions were behind the deterioration. Meanwhile, the pace of hiring was the softest in over one year, while business expectations weakened considerably amid a gloomier economic outlook. On the price front, input cost and output price inflation eased in the services and manufacturing sector, but accelerated in the tertiary sector.

Commenting on the release, Bert Colijn, senior economist at ING, stated:

“The PMI leaves no doubt, the economy is slowing markedly. Manufacturing, in particular, is performing poorly on supply chain problems and falling demand. […] Weaker demand for inputs will have an impact on producer prices down the line, but inflationary pressures are hardly abating right now. […] The problem remains that the total inflation outlook remains largely energy driven and the slowing gas supply is likely to be a dominant driver of the short-term inflation outlook, at least.”

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